KUALA LUMPUR, May 21 — MIDF Research has upgraded Sime Darby Plantation Bhd's rating to a ‘Buy’ from ‘Neutral’ with a higher target price (TP) of RM5.34 fuelled by higher contribution from its upstream segment.
In a note, the research firm said the revised price from RM5.29 previously implied an expected total return of 30.22 per cent.
Meanwhile, its earnings forecast for financial year 2020 (FY20) and FY21 increased by 64.1 per cent and 12.6 per cent to RM1.31 billion and RM1.02 billion respectively, given better financial performance from its upstream segment.
For the record, Sime Darby Plantation's first quarter FY21 earnings came in at RM407.0 million, a significant improvement of 67.5 per cent year-on-year.
It noted that the optimism in the company’s financial performance was mainly bolstered by the improvement in earnings from both upstream and downstream segment.
MIDF Research is expecting significant improvement in the group’s earnings supported by the favourable crude palm oil.
“Nonetheless, we remain concerned on possible impact on the group’s fresh fruit bunches production in view of the shortage of foreign labour which may interrupt bunch pollination,” it said.
As for the downstream segment, the research firm expects it to continue performing well on the back of the better performance of bulk business especially from the Europe operations.
MIDF Research believes that the group’s outlook will remain resilient on the back of its initiatives to increase efficiency via digitalisation, automation and mechanisation, despite the United States banning imports of palm oil from Sime Darby over allegations of forced labour.
It has also changed its valuation method for Sime Darby Plantation from price-to-book value to price-to-earnings ratio basis in view of the plantation company's upbeat financial performance.
As at 10.48am, Sime Darby Plantation rose three sen to RM4.48, with 337,100 shares traded. — Bernama
